(Rav Papa’s use of the word ‘mercy’ should also be investigated. Is the obligation to pay full damages really the efficient case and the Torah chose to be inefficiently merciful? What is the value of mercy in the Halachic system? Could mercy possibly override efficiency? Or is there a hidden efficiency, similar to our analysis of Rav Huna above?)

Before concluding this example, it is important to note that one of the guiding principles of economics is that all transactions require two parties, generally a Buyer and a Seller. In legal cases, we speak of the Criminal and the Victim, or the Defendant and the Plaintiff. Both parties have incentives and it is important to understand both sides. In the current case of the Shor Tam, the level of care taken by the victims should also be considered. Perhaps the victim’s incentives were relevant in the Torah’s edict.

If liability was increased from zero-damages to half-damages (Rav Huna’s opinion), we may suspect that the Torah sought to reduce the burden placed on the victim by placing half the burden on the owner of the ox. Alternatively, if the second case is correct, and the owner’s liability was decreased from full- to half-damages, perhaps we may assume that victims were projected to be negligent with their own property since they could expect to fully recover the cost of any damages suffered and therefore the Torah gave them the incentive to take some care of their own by reducing the liability of the damaging party to half.

Conditions

The above is a preliminary example of what I hope to accomplish through this column. It is not enough to know the outcome—one must also try to understand the procedure by which the outcome was reached. Without knowledge of the process, the essence is often lost and we are transformed into automatons, doing without really thinking. I hope to gain some insight into the manner in which Halachic decisions are made.

Before I conclude this introductory edition of Moral Hazard, I will present some of the conditions under which I will write. These conditions seem logical to me and I think they will be an integral, though mostly only implied, part of this column. It may be useful to outline these conditions here, at the outset:

1. Economics and Halacha Are Compatible

The working hypothesis of this column is that an economic mindset poses no outright conflict with a Halachic mindset. In other words, the assumption is that the economic ‘way of thinking’ is congruent with both Halachic practice and a Halachic ‘way of thinking.’ (There is certainly conflict between sound economic practice and Halachic practice—lending with interest is a quick, simplistic example—but this is, as mentioned, irrelevant for our purposes, not to mention a generalization: sound economic practice varies from place to place, system to system.) This hypothesis is based on my understanding of Halacha and economics. It is a working hypothesis and its validity will be tested as we progress.

2. Halachic Man is a Rational Man

Certainly Halachic Man is concerned with loftier goals than wealth and material well-being, however this is no reason to consider him irrational. The Rational Man is a man who acts so as to maximize benefit and minimize cost. An atheist may look at Halachic Man and see his actions as the epitome of irrationality, but this is only from a very closed-minded perspective. If a Halachic Man is hungry (and I certainly do not mean in any life-threatening sense) and chooses not to eat because the only food available is not kosher, the secular individual might accuse the Halachic Man of being irrational—“Surely the cost of hunger is greater than the benefit of ‘feeling pious!’” But for the Halachic Man the cost of hunger is far surpassed by the benefit of obeying God’s command. As Reish Lakish says (T.B. Sotah 3a): “A person does not sin unless he has been overtaken by a spirit of madness.”

The economist understands this distinction by way of the concept of utility. Utility is a theoretical measurement of pleasure and no two people derive the exact same level of utility from any one good. (For me, the benefit of the wine may exceed the cost of not being able to drive home tonight. For you, the opposite may be true—that is how designated drivers are born.)

Just as for Economic Man in general economics, the assumption that Halachic Man acts rationally requires a certain level of suspension of disbelief. Everybody knows people who act irrationally. Perhaps everybody acts irrationally sometimes. Perhaps no one ever acts with complete rationality. For some economists, the assumption of rational decision-making is considered only a small request; for others, it is thought to be a very large leap. Since Halachic Man acts within a system of reward and punishment, cost and benefit, incentive and disincentive, it is no more and no less of an issue to assume Halachic Man rational than it is to assume Economic Man is rational. It is, however, an integral axiom for our purposes: Halachic Man is rational.

3. Halacha Represents a Consistent System

Halacha as we know it today is the product of years of development. For example, the same issue discussed in the Torah, the gemara, Rambam’s Mishne Torah, and the Chofetz Chaim’s Mishna Berurah might very well take on several different permutations. However we assume that the transition from the Biblical period to the Talmudic period, and all similar transitions, occurred with a consistent devotion to the integrity of Halacha and therefore any apparent gaps in the system are due to our lack of knowledge, not a divergence from the philosophy of the system. We attempt to fill in the gaps by way of connecting whatever dots we may have, but sometimes even our best efforts fall short. In such cases we give the process the benefit of the doubt and assume that somewhere in between the start and the finish-line there is an ordered path, hidden as it may now be. This assumption is similar to the assumption that if the market price for a certain good was five dollars lower yesterday than the market price today, something has occurred in between the two days to alter the supply and/or demand of the good—we do not assume that the workings of the entire market have suddenly failed.

4. Halacha Represents a Legal System that Humans Can Comprehend

Just as we assume that Halachic Man is rational, we assume that the entire Halachic system is rational and, therefore, any perceived irrationality is due to the fact that we, as humans, lack information. This condition is essential because analysis of the incentives, disincentives, costs and benefits of the system is only worthwhile if we accept that we have a certain grasp of such qualities. If it can be countered that we are never truly aware of the costs or benefits of any of our actions this entire column becomes moot.

Yes, of course we will never fully understand Reward and Punishment, and we may never be able to satisfactorily answer the question “Why do good things happen to bad people?”—but this column is not concerned with that which we cannot comprehend since such matters cannot affect our incentives. For example, when the battery in your phone dies you are presented with the incentive to buy a new battery, but only once you become aware of the depleted battery. Before you are aware that the battery has died, even though the phone will not work when you try to use it, you have no increased incentive to replace the battery until you actually try to use it. (An interesting Halachic discussion relevant to this topic may be yeeush shelo midat, the classic case in which someone is considered to have given up hope of retrieving a lost object before becoming aware that it is missing.) Similarly, everything in Halacha which cannot be comprehended or predicted by humans can be disregarded here since it cannot affect incentives.

Therefore this column only deals with issues in Halacha that present us with costs and benefits that we can understand and act upon. And the subsequent assumption made is that when we can understand the incentives, we do understand the incentives—or at least we think we do—and act accordingly to maximize benefits as we see them. As Rebbi said (Avot 2:1), “Compare the cost of a mitzvah to its reward, and the reward of a sin to its cost.”

Moral Hazard: a Note on the Title of This Column

The economic term ‘Moral Hazard’ refers to a case in which inefficiencies may be caused due to a redistribution of risks. For example, when Fire Insurance is purchased, a risk which at one time, prior to the purchase of insurance, was borne by the individual is now, after the purchase of insurance, taken on by the insurance provider; the individual may be given the incentive, therefore, to reduce his personal level of care for fire safety, assuming he can expect full-coverage of damages and no increase in premiums.

The title for this column, then, comes from this economic term. It is, obviously, a play on words, since this column will not deal exclusively with issues of moral hazard in the technical sense of the term but will deal with issues of morality. However there is a deeper connection to this term as well.

My mother told me recently about a documentary she saw in which an atheist with a broken leg and no food was lost alone on a mountain. Somehow he found his way home and survived. In an interview conducted some time later, the mountain-climber said that he had not once asked God for help, had not once looked to the Heavens for assistance or guidance. This proved to him that he was a true atheist who, even in a time of extreme desperation, never wavered in his disbelief.

I wondered: would this man have been able to summon the strength to survive if he had not been an atheist. It’s an interesting question. Generally we assume that belief in God provides us with confidence and reassures us that there is ‘someone watching’—it is not random. But what about the opposite inclination: “God will save me.” And in those moments that demand the most of us, do we ever submit because we think God might pull us that last extra inch?

This is the moral hazard of belief: complacency. With this column I hope that I am able to contribute to a stepping away form this form of moral hazard.

- Chai Hecht
moralhazard@nishma.org